From Transactional to Strategic: How Payroll and HCM Together Drive Business Performance

Even though payroll is the largest expense for organizations, it’s impact on the business is more than being a cost center.

Workforce expenditures play a role in shaping business initiatives, from selecting a location of operations to determining areas to fund additional staffing. In other words, payroll provides insights that shape company growth—but only when leaders utilize technology that transforms payroll from a transactional practice to a strategic function.

In this interview, Cristina Goldt, Workday’s general manager of workforce and pay for products developed for the office of the CHRO, and David Hudson, Workday’s vice president of product management for Workday’s payroll products, expound on the need for organizations to rethink their global payroll strategy and explain what organizations need to make the shift.

In a recent IDC report, “Worldwide Human Capital Management and Payroll Applications Software Market Shares, 2022,” (doc #US49130523, June 2023) Workday was ranked #1 for 2022 market share and for combined human capital management (HCM) and payroll applications software. What do you think that recognition highlights?

Goldt: Payroll is a business-critical function, meaning you have to get it right. But we’re also seeing a trend that it’s evolving to explore how we allow payroll teams to do things that are more high value, instead of just the tactical parts of payroll, which you have to do. Because Workday is a combined HCM and payroll solution, we provide that lower total cost of ownership in that organizations are not having to integrate to payroll. A single payroll provider—and even some of those that sell payroll and HCM—are not actually on the same platform. And so we’re able to offer a solution where HR [human resources] data—such as compensation, benefits, and workforce management data—flows back and forth between payroll and HCM systems, making our platform much more dynamic compared to others. When HR data isn’t accessible to payroll through a single system, that can lead to errors, delays, and retroactive payroll because important info didn’t make it into payroll.

Hudson: I think it’s about seeing the end-to-end connection and realizing that payroll isn’t this island on its own. It’s this huge piece of so much else that goes on within a company. We like to say all roads lead to payroll, and that’s certainly true when you think of the data that goes into it. And I think what Workday helps provide and enable is that full end-to-end experience. It’s not just, “Oh, well, here’s my payroll over here, and my time over here, and HR over here, and finances way over there.” It’s understanding the entire end-to-end journey, the interrelationships there, and how that fuels how the process and how the system should work for companies as they continue to evolve.

The IDC report advises suppliers of HCM and payroll applications to “brave the headwinds” and discontinue or scale back products that are outdated. What do you think that means for Workday?

Goldt: For Workday, we’ve always been one joint system, and we’re always modernizing and improving our platform. In that sense, we don’t have to actually stop building products because we’re always advancing the products we have with the multiple releases we have. With payroll involving ever-changing compliance and tax-related regulations, Workday always makes sure our customers are up to date on all of that.

As for the headwinds, among the challenges companies continue to face is making sure they have the right people to do the work, which is challenging in a competitive landscape for talent. The fact is, organizations are just not going to have enough people to do all the things that need to happen. And so in terms of a payroll perspective, when a company is trying to manage costs and make sure they’re paying people appropriately, it matters to have all of that data because it helps to ensure people operations are running effectively and efficiently.

Hudson: Speaking of labor shortage, that headwind is impacting the payroll profession as well. The newest generation entering the workforce isn’t going to be as willing or as comfortable with dealing with some of the more difficult-to-use enterprise software that’s been in the market for 20, 30, 40 years. How does payroll, which historically operates as a back-office function, evolve to those changing needs and changing expectations of talent?

Because let’s face it: Many of us are glued to our mobile devices, which fuels the employee expectation that pretty much anything from anywhere should be accessible via that mobile device. Now, it might not be that payroll is going to be fully managed from your mobile device, but we need to understand that workers use technology in their everyday life and are looking to see similar technology experiences replicated in the workspace.

The IDC report also mentioned the need for modernization. In what ways or areas does payroll need to modernize and be strategic?

Goldt: Payroll is one of those foundational actions that needs to happen.You have to pay your people. But the thing is, payroll doesn’t sit by itself. Payroll is part of a company’s people strategy. 

How do we evolve that and make it run better, run faster, so that we are getting the most out of what we’re doing? There’s so much opportunity there for what we can do. For example, what goes into payroll includes all of core HR data, compensation data, hours worked, absence information, and more. Having all that data working together is very important to shaping the business strategy. 

In terms of payroll processing, being able to process correctly and faster with less human intervention is super important. A lot of time is spent where there is a human kicking off the different parts of the payroll process or reviewing parts of the process. So I would say, artificial intelligence and automation is key to modernization. They enable people to get to the more high-value, more strategic work with payroll that’s related to the strategy for the employee experience we’re providing versus just, “I got to run payroll and get it run, and get it run in the timeline that I need to do that.”

Hudson: Certainly increased automation or artificial intelligence is important for modernization, but more than anything, it’s about how to do more with less. Payroll professionals are so overworked and need help from technology to do their work more easily.

But how do payroll admins take out those non-value-added activities? How do payroll administrators make sure that data moves swiftly and efficiently so they can minimize those lower-value activities that are just about inspecting or removing data? How can payroll teams focus on those higher value-adds and more strategic business areas? And finally, how does payroll tie into the way organizations manage their workforce further upstream in terms of influencing compensation plans and absence policies? For example, having data on overtime incurred by worker type or location is critical for industries such as retail, hospitality, and other industries with a large number of frontline workers.

All those have an end impact on what happens within payroll. By modernizing those areas, taking out any sort of low-value work, organizations gain a payroll function that can be more dynamic, more efficient, and serve the organization’s overall global workforce.

With companies increasingly becoming more global and more connected, what do company leaders need to be successful in having their payroll operations drive business impact as the company scales?

Hudson: So much of it starts with being able to access all the data all in one place with interfaces that help bring it all together. Payroll wants to understand the business impact of what all those things are doing, so how do you create that connectivity and efficiency? By having those various interfaces there, organizations can bring together this collected knowledge around changes in work. 

For example, organizations have increased their remote or hybrid workforce, so changes in where an employee works could have an impact on taxation, the type of overall labor, and more. And those areas end up driving payroll. In turn, that informs where the business should go. 

Payroll needs a common view so the information isn’t siloed—that isn’t, “I look at payroll over here, and I look at time or absence over here, and I look at my workforce over here.” It’s allowing payroll to see the collected information in one place. 

And then how does that allow the payroll manager to be that strategic partner for the business and inform the organization? It can look something like this: “Hey, as we look at what we’re doing in this area, we’re seeing how this impacts how we compensate and ultimately pay people. And so, as a company, we need to consider how we’re going to grow staff in a certain way, how we’re going to move to this other geography, or how we think about those various areas.” Providing visibility and insight into the data and everything that relates to the payroll operational flow is critical toward elevating payroll to that more strategic function.